14 Mar 2025
The wealthier and better-prepared end of Generation X is starting to retire. This cohort may accelerate a shift in retirement patterns driven by government action, changing attitudes, economic necessity and evolving patterns of wealth. As a result, advisers are adapting, bringing greater flexibility into their retirement models.
The next generation of retirees has a different expectation for retirement, both out of necessity and desire. They do not have the gold-plated DB pensions of previous generations, which has created less security around retirement, but many also have a different and more ambitious vision for their later years. For example, Age UK reports that the number of self-employed people aged 65 and over has more than doubled in the past five years1.
Increasingly, retirement is becoming a process that may take place over several years, rather than a hard stop. In the BNY and NextWealth ‘Retirement Advice in the UK’ report, one independent financial adviser says the dynamic has shifted gradually over the past 30 years. In the approach to retirement, “lots of people are reducing hours, reducing their working week, but still want to work because they like the level of income. They like keeping their brains active. It’s not uncommon to see people into their early 70s still working because they want to.” The survey shows that around a fifth of advised clients are in a phasing stage between full employment and full retirement.
Advisers report that clients want to retain the companionship, purpose and intellectual stimulation of work, albeit not necessarily at the same pace. Advised clients want choice. One adviser says: “it will start with saying, ‘Can I afford to work a four-day week?’ ‘If I can agree it with my employer, can I go down to a three-day week?’ Most people, even if they don’t enjoy the job, they enjoy the social aspect of work.” One adviser is even seeing an interest in ‘mini retirements’ among younger clients. Popular on social media, these are an opportunity to step back and reassess.
That said, while progressive retirement is a clear trend, it shouldn’t be over-estimated. Often, our survey suggests, when people start to wind down, they find they like it. For the time being, there is an average of just two years between starting the move towards retirement and full retirement. The transition starts, on average, at 59 and the move into full retirement is at 61.
It is also worth noting that while they may have different ambitions, the core aspirations for retirement do not change much over time. Advised clients surveyed say their biggest objective is to spend more time with their family and friends. This still takes precedence over a new business venture, or consulting career.
Regulation
Regulation is also a major contributor to changing patterns in retirement. The pensions freedoms introduced in 2015 continue to allow for a broader range of approaches to retirement planning. Successive governments continue to tinker with the rules, and each change will prompt a shift in the way retirees and their advisers plan later life finances.
The most recent budget is a case in point. By removing the inheritance tax (IHT) break for unused pensions, there is no longer any significant benefit in leaving pensions untouched, so they can be passed on free of tax. For many advisers, it has forced a major rethink of retirement planning strategies.
One adviser says: “We’re going to have to start looking at a different way of creating income. The old way, we’d use pensions where necessary but if we could defer them, we would spend down personal assets. Now it’s going to be very personalised, looking at whether they are concerned about IHT, the options they have, the planning we need to do.”
The economic environment
The economic environment has also been a factor in shifting retirement patterns. When retirees had the security of a defined benefit pension scheme, the economic and financial market environment mattered less. Today, annuity rates have bounced around a lot, as has the cost of living. Retirees – with the help of their advisers – are performing a delicate balancing act between their age, their work, the level of financial markets and their personal preferences.
For example, one adviser points out that while they would typically expect clients to reduce their working hours as they near retirement, they are seeing a minority increase their work ahead of retirement. Some clients are even going back – a quarter of the financial advice professionals surveyed say ‘some of their clients’ are stepping back into the workforce, and 8% say this is true for many of their clients.
The macroeconomic environment is also influencing other behaviours – it is leading more clients to increase withdrawals from savings, for example, while others are also reviewing the amount and/or timing of passing wealth to the next generation. For some, they just keep working until they have greater clarity. That said, there are also upsides. Rising interest rates have lifted annuity rates and made it easier to generate an income from bond markets.
Changing asset mix
The sources of wealth to be drawn upon in retirement are becoming more varied. Clients aged 55 to 64 place less importance on the state pension and defined benefit pensions than those aged 65 or over. However, they are more reliant on defined contribution and personal pensions, with 61% saying personal pensions are an important source of retirement income compared to only 40% of the older retirees. Older clients list ISAs as a more important source of income in retirement than defined contribution pensions, but this is reversed for the younger cohort.
Retirement planning is not just about pensions. Over a third of advised clients say their primary residence is a very important source of wealth for their retirement income. But when we look at this by age cohort, we find that only 28% of those aged 55 to 64 see their primary residence as an important source of retirement income, compared to 42% for the older cohort. This is balanced by the younger generation attaching greater importance to buy-to-let and second homes.
Debt may also be a consideration. Retirees today are more likely to have mortgages, or other outstanding debts as they hit retirement than previous generations. The Nationwide Retirement Institute found that around a quarter of retirees still have mortgages. While many may downsize, it can create complexity for financial planners. Care is also a greater consideration for retirees as life expectancy grows. While it is difficult to plan for care needs in detail, retirees need contingency options should it become necessary.
These factors are conspiring to make the modern retirement look different. This creates complexity for financial advisers, but also opportunities. It means creating a financially secure retirement has become more difficult, and advice is more important than ever.
Source: Research conducted by NextWealth for BNY Investments, based on responses to surveys with 208 retirement-focused financial advisers and 254 consumers of retirement advice conducted between 9 September 2024 and 21 September 2024.